With normally-sloped IS and LM curves,an increase in government expenditure ________ consumption expenditure since autonomous consumption ________ while induced consumption ________.
A)can raise or lower,falls,rises
B)can raise or lower,rises,falls
C)must decrease,falls,also falls
D)must decrease,rises,falls
E)must increase,rises,also rises

Question

Quizplus · Accepted Answer

An increase in government expenditure can either raise or lower consumption expenditure depending on the relative magnitudes of the multiplier and crowding-out effects. Autonomous consumption may fall due to higher interest rates (crowding out investment), but induced consumption rises because of the increase in income, leading to a mixed effect on total consumption.

With Normally-Sloped IS and LM Curves,an Increase in Government Expenditure